Inflation up, markets down - and Darling passes the buck again

Figures released today show that the Consumer Price Index rose by 0.3% to 4.7% in August, despite slow trading on the high street and falling manufacturing output.

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Published: 16 Sep 2008

Last Updated: 31 Aug 2010

Meanwhile, the global markets are reacting - badly - to the demise of Lehman Brothers, with indices in Japan, Hong Kong and South Korea down more than 5% today after being shut yesterday for a public holiday. The FTSE was down yesterday and is still falling, off around 130 points - 2.5% - in this morning’s trading.

It’s true that the inflation figure could have been worse - some Jonahs were predicting it might break 5% - but it’s not great news all the same. Inflationary pressure is still coming from things that are largely beyond governmental control, like food and energy prices, fuelling the uncomfortable feeling that we’re all blindfolded passengers on a roller coaster and nobody knows how to put on the brakes.

The market reaction is hardly surprising given what happened yesterday - top five I-Banks don’t go bust everyday, thank goodness - but the impact on some individual shares has been brutal. HBOS, Britain’s largest mortgage lender, was down nearly 40% at one point yesterday before recovering towards the end of the day, and is down again this morning.

Much of this is ‘noise’ driven by flustered traders, ably abetted by hedge-funds shorting the stock. But if that kind of market punishment is sustained for a decent period, then perception might just become reality, with extremely unpalatable consequences for us all.

Alistair Darling apparently thinks something should be done to limit the chances - however small - of such a systemic failure brought on by ruthless short-selling. He may well be right - if it did happen it would make the current economic turmoil look like a birthday party by comparison. But in the same breath he bleats that his hands are tied and that it’s the FSA’s job to deal with the situation.

If not now, then when, Alistair? There hasn’t been a better opportunity for a British chancellor to intervene in the national interest for well over a generation.